Reinsurance has become an “interesting new asset class”: Willis’ Hearn

The reinsurance sector has become an “interesting new asset class” and nothing is yet abating the pace of new capital entering the space, according to insurance and reinsurance broker Willis’ deputy CEO Steve Hearn.
Hearn, speaking during the brokers second-quarter earnings call, said that Willis has managed to grow its reinsurance broking business at a faster rate than key competitors in a market environment where capital is increasingly being provided by investors and reinsurance contract structures are changing to accommodate that.

Despite this change to the market dynamic, a change many consider to be truly fundamental and evolutionary to the reinsurance market’s future, Hearn said that the Willis Re team has done a good job of embracing the changing environment and making the most of the opportunities it presents, both for its clients and for its shareholders.

Hearn said that to his mind there is no doubt that the evolving reinsurance market, with capital from third-party sources increasingly important come renewal time, is having an impact on the reinsurance rate environment.

Hearn said that the “significant changes” that are happening in the reinsurance market, as a result of convergence, price pressure and competition and third-party entering the space, have to be acknowledged.

“The impact of so-called new capital into the segment is obviously significant and nothing has abated the pace of this new capital as far as I’m concerned,” said Hearn.

Hearn said that the reinsurance market has definitely become an “interesting new asset class for many new investors into the segment.”

Showing that Hearn still believes this is not simply a transitory period in the reinsurance markets development, rather something more permanent and fundamental, he added; “The debate continues as to whether that’s temporary or something far more fundamental and I am very much of the latter opinion that it’s driven by macroeconomics and pricing and no more than that.”

Hearn said that the current market dynamics is resulting in Willis’ clients looking at how they approach and purchase risk transfer, how much risk they retain and whether to buy more or different products when pricing is lower.

Hearn said that Willis responds to this by ensuring that it is a trusted, expert advisor to its clients. “You still need actuarial support, cat modeling, etc and we have embraced the changes in the dynamics of the market and I think taken good advantage of it,” he explained.

Willis’ retention rate has been good with existing clients, Hearn said, as well as also attracting new business, which he puts down to the way Willis’ brokers and advisers have embraced the changes in the market.